AI Enthusiasm Boosts Cyber Stocks; Options Offer Gains

CrowdStrike shares jump 10% ahead of S&P 500 inclusion, AI boosts cybersecurity sector.

By Bill Bullington

6/11, 10:53 EDT
First Trust NASDAQ Cybersecurity ETF
CrowdStrike Holdings, Inc.
Alphabet Inc.
ETFMG Prime Cyber Security ETF
Meta Platforms, Inc.
NVIDIA Corporation
Palo Alto Networks, Inc.

Key Takeaway

  • CrowdStrike shares surged 10% ahead of its S&P 500 inclusion, with indexers expected to buy ~30 million shares.
  • Palo Alto Networks shows bullish technical indicators; a bull call spread trade offers a potential 100% return.
  • Evercore's "AI revolutionaries" include Nvidia, Alphabet, and Meta Platforms, all showing significant AI-driven growth.

AI Mania Boosts Cybersecurity Sector

The recent surge in artificial intelligence (AI) investments has had a ripple effect across various sectors, with cybersecurity emerging as a significant beneficiary. CrowdStrike, a prominent player in the cybersecurity space, recently hit new all-time highs ahead of its inclusion in the S&P 500. This inclusion is set to take effect on June 24, replacing financial firm Comerica. The announcement led to a 10% jump in CrowdStrike shares on Monday.

Evercore analysts noted that their trading desk expects indexers to buy approximately 30 million shares of CrowdStrike. This expectation is based on the common practice of fund managers updating their portfolios to reflect changes in the benchmark index. Security ETFs also saw gains, with the First Trust Nasdaq Cybersecurity ETF climbing 1.3% and the Amplify Cybersecurity ETF rising 1.2%.

CrowdStrike has been profitable for the past five quarters, meeting the requirements for inclusion in the S&P 500. The company boasts a market cap of over $90 billion, more than double the valuation of the median S&P 500 company. CEO George Kurtz expressed his gratitude, stating, "This incredible milestone is a testament to the hard work, dedication, and belief our team, customers, and partners have shown since our inception in 2011."

Technical Analysis of Palo Alto Networks

Palo Alto Networks (PANW) is another cybersecurity company that stands to benefit from the AI boom. Technical indicators suggest a bullish trend for PANW. The Relative Strength Index (RSI) for PANW is sharply increasing, indicating strong bullish momentum. Additionally, a DMI crossover occurred on June 7, signaling a potential trend reversal. The price action also shows a clear uptrend, characterized by higher highs and higher lows.

To capitalize on this bullish sentiment, a "bull call spread" trade structure is recommended. With PANW trading at $308, the trade involves buying a $305 call and selling a $310 call, both expiring on July 5. The cost of this trade is $250, with a potential profit of $250 if PANW trades at or above $310 by the expiration date. This setup offers a 100% return on the amount risked, equating to a potential gain of $2500 for 10 contracts.

Evercore's AI Revolutionaries

Evercore ISI has identified a group of stocks that are at the forefront of the AI revolution. These companies are considered "AI revolutionaries" and are expected to outperform in the long term. The list includes Nvidia, Alphabet, Meta Platforms, Uber Technologies, and TripAdvisor. These companies were selected based on the frequency of AI mentions in their call transcripts and upward revisions in their 2024 earnings per share estimates.

Nvidia stands out with 446 AI mentions and a 20.3% upward revision in earnings estimates for 2024. The company's recent 10-for-1 stock split is seen as a catalyst for further growth. "As with the history of tech stock splits before it, weakness is a buying opportunity," said Julian Emanuel, Evercore's senior managing director. Nvidia's shares have surged more than 140% in 2024, bolstered by the announcement of its latest suite of AI chips, dubbed "Rubin."

Meta Platforms also made the list, with shares climbing more than 40% in 2024 and earnings estimates up by 14%. Despite a lower-than-expected revenue forecast, Meta is doubling down on AI, with capital expenditures increasing to a range of $35 billion to $40 billion. CEO Mark Zuckerberg assured investors that Meta has a strong track record of monetizing new AI services effectively.

Alphabet, the parent company of Google, notched 169 AI mentions last year and has seen its shares climb more than 25% in 2024. The company posted beats on both the top and bottom lines in the first quarter and authorized its first dividend payment. Alphabet's suite of AI products includes its large language model, Gemini, and Vertex AI, which targets enterprise companies. "We are well under way with our Gemini era and there’s great momentum across the company," said Sundar Pichai, CEO of Alphabet.